VMware slumps as weak federal spending, restructuring hurt outlook

January 29, 2013|Reuters

Jan 29 (Reuters) - Shares of VMware Inc were set toopen down 17 percent on Tuesday after the software makerforecast a disappointing year ahead partly due to a drop infederal spending, prompting several brokerages to downgrade thestock.

The company also said it plans to cut about 7 percent of itsworkforce as part of a restructuring program and would scaleback in some areas of its business while putting more emphasison certain geographies, product groups and operations.

VMware shares were down at $81.98 in premarket trading onTuesday, after closing at $98.32 on the New York Stock Exchangeon Monday.

"The guide down for 2013 is being influenced by upcomingrestructuring and strategic shift within the firm wherebymanagement tools are growing at a slower-than-expected pace,"Mizuho Securities analyst Abhey Lamba said in a note.

Lamba, who cut his price target on VMware's stock by $15 to$100, however said the company was well positioned to expand itsdominant position in the virtualization business.

Five brokerages, including Morgan Stanley and Goldman Sachs,cut their ratings on VMware stock, while seven others cut theirprice targets by an average of $9.6 to $99.4.

VMware, a publicly traded division of data-storage equipmentmaker EMC Corp, is the biggest maker of virtualizationsoftware that reduces the number of servers companies need.

It competes with Oracle Corp and Citrix Systems Inc in that market, and with Salesforce.com Inc inoffering "cloud" computing services.